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Danone hit by higher milk prices

Wednesday, April 16 14:21:42

French group Danone posted a slowdown in first-quarter sales growth today as sales volumes at its core dairy division were hit by the company passing on higher milk prices.

Sales in the baby food business also fell, though less sharply than feared.

However, the group maintained its forecasts of like-for-like sales growth this year of 4.5-5.5 percent and an operating margin changing by no more than 0.2 percentage points either way, from 13.19 percent of sales last year, as it was aiming for a return to "strong, sustainable, profitable growth" in the second half.

The world's largest yoghurt maker, whose brands include Actimel and Activia, makes 60 percent of its revenue in dairy, a sector hit by a spike in milk prices.

Danone is also currently trying to rebuild its positions in the high-margin baby food division in China after an infant formula product recall in Asia last year hit sales.

Like-for-like group sales adjusted for currency effects and acquisitions rose 2.2 percent in the first quarter on the same period last year, a slowdown from 2.9 percent growth in the fourth quarter of 2013, Danone said.

The dairy division posted sales growth of 3.9 percent, which was a slowdown from 4.9 percent in the fourth quarter.

This reflected a 3.7 percent fall in sales volumes offset by a 7.6 percent rise in prices. The volume decline came from price increases that started in the second half of 2013 in response to higher than expected milk prices, particularly in Russia.

Political unrest in Ukraine also hit revenues, although Ukrainian sales represent only 5 percent of CIS regional sales, Chief Financial Officer Pierre-Andre Terisse said.

Elsewhere in Europe, dairy volumes also fell as Danone passed onto customers rising milk prices in some countries but it still aims to stabilise volumes by year-end, Terisse said.

Overall, dairy volumes were expected to continue falling in the coming months though they could start rising in the third and fourth quarter, he said.

China contributes 6 percent of group sales but the maker of Bledina baby food and Evian and Volvic water as well as yoghurts faced a variety of problems there last year.

In August it had to recall infant formula products due to a health scare that began with concerns raised by New Zealand-based supplier Fonterra. A bacteria found by Fonterra turned out to be less harmful than feared and Danone is now suing the company for unspecified compensation.

Danone said on Wednesday that baby food sales fell 7.7 percent in the first quarter, which follows a 6.9 percent decline in the fourth quarter of 2013.